Protecting your finances in a no-growth economy
With the economy now expected to show zero growth this year and the threat of a junk status rating on the horizon, times are tough for the average consumer in South Africa and many households are taking strain.
So what can be done to ensure that you can hang on to your existing home – or perhaps even become a homeowner for the first time?
“Now is the time to go through all your bank and card statements, monthly bills and payment records to find out exactly where you stand financially and what options you have,” says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s largest mortgage originator.”
“This is not the time to avoid the issue if you have too much debt and too little income. You need to look at your situation honestly and urgently take whatever action is necessary to improve it.”
To get rid of debt, he says, consumers should start by eliminating any further credit card spending and reducing the outstanding balances as fast as possible. “Credit card debt usually carries the highest interest rate and compounds faster than anything else, so our advice is always to use credit cards only for absolute emergencies, to avoid carrying them around so they can’t be used for impulse buys, and to use any spare cash you have to first pay off existing credit card debt.
“Next on your list to pay off should be any personal loans you have, after which you should systematically address any store card balances and any car loans to get rid of them as soon as possible.
“You might also want to consider whether it is worth switching from high-cost debt to lower-cost debt by consolidating all outstanding amounts into your home loan. But remember, you will then be increasing the risk of losing your home if you can’t afford the bigger loan instalment each month, and you will still need the discipline to stop incurring new debt.”
Alternatively, says Rademeyer, if you are managing to cope with your debt but are finding it really difficult to save, you should make it a habit to pay cash or by debit card only for regular purchases such as groceries, as this will help you keep more accurate track of what you are actually spending and stick to your budget.”
Other strategies for making sure you have more money than month include using public transport as far as possible or car-pooling to work, moving to cheaper accommodation if you are renting, eating and entertaining at home instead of in restaurants and malls, watching your water, electricity and cellphone usage, and even making a resolution to buy nothing new at all except food and basic necessities until you have reached your savings goal.
And speaking of goals, he says, it is always easier to save if you have a specific purpose for doing so – such as a special holiday at the end of the year, perhaps, or being able to take time off to study, or the deposit on a home of your own.
“Saving for better times, rather than the proverbial ‘rainy day’, is more likely to give you the incentive to save every day – and the results can be quite dramatic. Just R10 a day, for example and you will have more than R3500 after-tax in your savings jar at the end of the year.”
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